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How to Increase Customer Lifetime Value

Posted by Joe Moriarty on May 4, 2021

In Customer Retention

Customer Lifetime Value (CLV) is a hugely important metric and improving it is a primary objective for many businesses.

Being able to improve CLV will guarantee greater revenue, open opportunities for new business, and – done correctly – can be a pillar of sales and marketing strategies.

Luckily, we’re going to give you the rundown on CLV and 9 actionable ways to increase it.

What is Customer Lifetime Value?

Let’s have a quick rundown on what CLV is. CLV represents the total spend with your business by a customer during their lifetime. To calculate CLV you need three values:

  • The average cost of a purchase
  • The average number of purchases per year
  • The average number of years of customer relationships

Once you have this information you simply multiply them all by one another.

Imagine a mechanic services cars for a family and the average cost of a service is $200. This family has 3 cars and as a dedicated customer will use the mechanic for 10 years. This means their CLV is $200 service x 3 cars x 10 years = $200 x 3 x 10 = $6,000.

Now let's consider someone living alone with just one car who moves house after 3 years to a different area. Their CLV is $200 service x 1 car x 3 years = $200 x 1 x 3 = $600.

Now it’s clear that the family offers far more value as a customer – but how can a business either improve on their best customer’s value or increase their lower value clients?
This is where our ‘boosting’ methods come into play.

9 Ways to Increase Customer Lifetime Value

1. Listen Closely

It should go without saying that if you make your customers happy they will want to continue being a customer. However, to make your customer happy, you need to understand what drives them – what they want and need.

By taking the time to review accounts with the customer in question you can show that you are not only interested in their situation, but can also get real feedback straight from the source.

Once you begin to do this, taking note of all points raised, you can collate this information from across your portfolio. You’ll then have common pain points, but also common types of praise.

All this feedback can be used to make meaningful changes in your business and can help keep you on course rather than blindly traveling from one product or customer to the next.

2. Cross- and Up-Selling

A classic pair of techniques, sought after by sales teams everywhere are the cross-sell and up-sell. Your existing customers are the most likely prospects you have for cross-selling and up-selling. They already understand you and your product or service and they’ve already parted ways with their own money to work with you.

Of all the points on this list, this one should be the easiest to implement. The danger, however, is that it can come across as pushy or too salesy so you need to time it correctly.

If you have your product’s lifecycle mapped out, then keep an eye on where the customers are on that journey. Once they are coming to the end, bring to their attention the products or services which they can take on next – to continue getting the value they want from you.

If your sales team knows what they are doing and your product ticks all the boxes, over time your customers will accumulate more products and services – increasing CLV.

3. Boost Annual Billing

When selling modular systems or services it’s very common to have monthly billing in place. It has risen massively in popularity with the SaaS model, where flexibility is offered to customers to help them manage the services they want at any given time.

While this is great for customers and many businesses make it work – annual billing is a safer way to guarantee CLV.

If your customer is happy to commit to annual billing – absorbing the initial costing and sacrificing flexibility – then you are going to reduce your customer churn. Keeping your customers committed to you, if you have guaranteed their billing and use of your service, will give you more time to cross-sell and up-sell.

But to get customers over the line into annual billing, you have to sweeten the deal. The standard discount applied for 12 months upfront is usually between 10% and 20%. If you’ve done the hard work during the prospecting process, customers will see the value your product or service gives them and will be ready to take the leap.

4. Foster Community

If you want to escape being a faceless services brand then you have to bring your customers into the world of your business – and help them to work with other users to get the most from your products and services.

When we think of community we think of a close-knit group, with common goals and aspirations. The same is true in business and if you can onboard customers and give them a space to engage with like-minded people or businesses you can improve loyalty and because of that CLV.

Once they have taken part in a community, giving to it and taking from it, they will be intertwined with your products and services as their connection to it will have been woven into the group that they now feel a part of.


5. Free Upgrades

Freebies are a common staple of sales tactics and for good reason – they work. People love to get something for nothing; even though we all know that it’s to help engagement and build relationships.

Even better than just giving away things for nothing is to build giveaways into a larger test process. If you’ve developed a new product or service for the market and want to get feedback on it then give it to customers for nothing.

Showing that you value your customers’ opinions is a great way of making them feel good – plus you’ll get valuable feedback for very little cost.

6. Create a Customer Training Program

If you want to increase CLV then you can’t go wrong with customer training. It’s shown that for every $1 a customer spends on training, they will go on to spend $12 on products or services related to the training – huge ROI.

Creating customer training programs help educate and engage your customers with your products and services – and gives you an interactive way of remaining front of mind. You can feature these parts of their personal development – so that when they complete a course and can see the value it adds to them and their work they will see your company as the provider.

We’re big fans of customer training – its positive impact cannot be understated and so we’ve written a couple of guides on how to set it up and how to maximize its impact.

7. Up Your Pricing

This is a pretty simple point on the surface – but don’t let that fool you into thinking it’s easy to execute. Ask a customer if they’re happy to have their prices go up and the chances are you’ll be met with a strong ‘no’. So how do you increase the price and in turn CLV without putting the customer on edge?

Well, to start with you can change the price for new customers. They are unlikely to have a good gauge of your previous pricing and providing your product or service is competitive then the price you attach to it can be justified.

This means that the new customers you are onboarding are going to be of higher value going forward and this helps in the long term with CLV but also in the short term with the cost of onboarding.

For your existing customers, consider adjusting the prices of products or services that you want to up-sell or cross-sell to them. In the same way that a new customer won’t know the ins and outs of previous models, they’ll have even less idea of cost on the products and services they haven’t used before.

8. Make Onboarding Easier

As mentioned, increasing CLV is all about getting a customer to spend more with you. A customer starts with you at the point of onboarding and so if you can nail this step, you’re going to set yourself up for a happier customer. There is nothing worse as a customer than having a sinking feeling when you start buying from someone.

Whether it’s B2B or B2C, people want what they want as quickly as possible. Once they know they want to have something from you, they will want you to deliver it yesterday. While your business product or service might have standard lead times, making everything as slick and quick as possible will help put a smile on any client's face.

Understand that one size doesn’t fit all, so tailor your onboarding process to the customer’s requirements. Some of this will be trial and error but rely on your sales and business development teams to do what they do best and find the way forward with new customers.

9. Set Up a Referral Program

Referral programs can be set up very easily in almost any business, whether you have a purely online presence or a bricks-and-mortar store. Once set up, it is an excellent, low-cost way to increase CLV.

Word of mouth is always touted as one of the most powerful forms of marketing. If someone tells you a business, product or service is worth your time, it is usually because it’s worth theirs as well. Once someone has found the value in something, they want to show others that they have found it.

This means that done right and with enough existing goodwill and sentiment among your customers, you can mobilize that base into a sales and marketing platform for a very low cost.

Having your paying customers help you find more business improves their CLV and that of new customers recommended to you who then cost a fraction of normal prospects to onboard.

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